Macro Environment – Something has got to give somewhere!
The spread between Fed Funds Rate and Market Expectation using Taylor’s Rule
is currently at 206 basis points, a level not seen since May 2008.
Taylor’s Rule Definition:
A guideline for interest rate manipulation. Taylor’s rule was introduced by Stanford economist John Taylor in order to set and adjust prudent rates that will stabilize the economy in the short-term and still maintain long-term growth. This rule is based on three factors:
1)Actual versus targeted inflation levels
2)Actual employment versus full employment levels
3)The appropriate short-term interest rate consistent with full employment
Source: Web. http://www.investopedia.com/terms/t/taylorsrule.asp